Investment in Rice Milling Key to Boosting Export, Report Says

The World Bank says Burma could boost agricultural exports by investing in rice mills, reducing transport costs and formulating policies that support the export.

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By Kyaw Hsu Mon 13 June 2014

RANGOON — A new World Bank report said Burma can greatly increase its agricultural exports if it can improve the quality of rice through investments in rice mills, while it should also reduce transport costs and formulate policies to support rice export and agricultural production.

Burma’s reformist government aims to improve agricultural productivity and rice exports, and it has set a goal of exporting 4 million metric tons of rice by 2020. The report, titled “Capitalizing on Rice Export Opportunities”, said that since reforms began in 2011 rice exports have significantly increased, but in the past two years export volumes levelled off at about 1.3 million tons annually.

It said much of the rice produced in Burma is of low quality and unfit for export to high-value markets such as the European Union, where Burmese products are exempt from import tariffs under the Generalized Scheme of Preferences, which grants least developed countries preferential market access.

“The current rice export strategy favors the production of low quality rice, which is largely sold to Africa and China. Consequently, farmers have earned minimal profits and agribusinesses have skipped necessary investments,” a World Bank press release said. “The situation is worsening as the global demand for low quality broken rice is shrinking.”

Burma’s agriculture sector is the country’s largest employer and 70 percent of all Burmese live in rural areas, but under the previous military regime the sector saw little improvement in agricultural productivity, while rice exports fell sharply compared to the 1960s.

Paddy yields in Burma are among the lowest in Southeast Asia at 2.5 metric tons per hectare and most rice mills used outdated machinery that produces rice with a high percentage of broken grains, making it unsuitable for foreign export markets, according to the World Bank.

“The milling sector operates with obsolete processing units that causes about 15-20 percent losses in quality and quantity during the milling,” it said, adding that the government should take measures to attract foreign investment to the rice milling sector so that it can upgrade its machinery and produce better quality rice for export.

The report said the government should also take steps to make commercial loans more easily available to rice millers, who need capital to buy up paddy stocks for milling.

“A more efficient milling sector would give strong incentives to kick-start farm productivity growth as illustrated by the recent experience in Cambodia, but investments in public goods will be the key to maintain that growth over the long run,” the report.

Other short term measures include establishing a predictable trade policy and lowering port charges and reducing export procedure costs. “Yangon Port, the main export gate, is small, outdated and with limited capacity during monsoons. The export procedure costs are some of the highest in the region,” the report added.

To improve long-term rice production the World Bank said Burma’s government should take steps such as improving water management, engaging farmers into decision-making, providing land tenure security and making investments in rural roads that connect farms to markets.

Soe Tun, general secretary of the Myanmar Rice Exporters Association, shared the conclusion of the World Bank report and he told The Irrawaddy in a recent interview that total rice exports in 2013-2014 had in fact dipped to 1.2 million tons, down from 1.47 million tons the year before.

According to the association, about 60 percent of exported rice goes to China and another large share is sent to South Africa, while small quantities of high-quality rice were shipped to the EU and Japan, with the latter receiving about 5,000 tons of Burmese rice last year.

Upgrading the country’s rice mills, Soe Tun said, would be a key step towards boosting exports. “Our rice milling industry is quite old; more than 90 percent of total rice mills in Burma are of low quality… That’s why we can export very little high-quality rice to Japan last year,” he said.

Agriculture and rice milling have so far failed to attract foreign direct investment (FDI) required for improving rice production and processing.

“There is very little FDI in this agriculture sector. The investment rate in this sector is not increasing,” Soe Tun said. “We need support from the government, and should work together with others in the private sector, government and other INGOs and local NGOs to improve the sector.”

“We need to upgrade our cultivation system as well as the milling system. [And] we’re facing a lack of infrastructure to export rice, for example, logistics fees are quite high, 25 percent of total [production costs are spent on logistics,” said Soe Tun.

“Now, the transport costs of from Yangon to Muse [a Burma-China border crossing] is more than the transport cost from Yangon to Africa.”